Protect Your Business from Internal Theft

As carefully as you screen potential employees, you could still end up with someone on your staff who steals from your business. Here are some things you can do to protect yourself from internal theft.

Establish Security Procedures, Policies and Programs to Protect your Business from Internal Theft

In my most recent columns, I’ve covered some serious external threats to small businesses, such as armed robbery, carjacking, burglary, and arson.

But the small business owner must also be aware of and concerned about internal threats to his or her business as well. Studies show that internal theft accounts for more than one-third of stolen money and products.

Nearly every day one reads about a trusted church, charity or local small business employee who was caught stealing. The employer is shocked at the discovery and fellow employees can’t believe it. He or she was the last person they would suspect of stealing.

But unbeknown to his or her employer and fellow employees, he or she had a drug and/or gambling habit, was in dept, was disgruntled, or simply had a larcenous bent. 

So without being unduly suspicious of one’s employees, a business owner should establish procedures, policies, and programs that protect the business from internal theft.

For more than twenty years I was the administrative officer for a Defense Department command in Philadelphia and I oversaw all security programs. Internal theft was minimal in large part because most Defense Department employees were and are honest.

Most federal employees believe their federal career is a relatively good one so they would not risk their career by stealing government property or another employee’s personal property.

Yes, Virginia, one can be fired from the government. And one quick way to be removed from federal service is to be caught stealing. 

In my Defense Department command, we established security procedures, policies, and programs. All employees were made aware of them and they were instructed to observe them.

We also had a very low turnover rate. Studies have shown that businesses with low turnover rates also have the lowest internal theft rates. Long-term employees and newer employees who believe they have a future with the firm feel invested in the business and they generally don’t steal.

But even the most secure government facility and the most generous business will have some incidents of internal theft.

Security professionals believe the below basic tips will help protect your business against internal theft:  

  • Conduct a background check and interview all job applicants. Hire a screening service if you can afford it.
  • Conduct initial drug tests and tell applicants that they will be randomly drug tested during the year as well. This will keep most drug users from your business.
  • Install a strict code of conduct and ensure that all employees are made aware of it. Inform employees that anyone caught stealing will be fired, arrested by the police and prosecuted.
  • Install internal and external cameras that record. Place a camera on all doors to record what goes out the store.
  • The owner, manager, security person, or all three if the business has them, should be a constant security “presence.” They should roam the business establishment, letting themselves be seen as they casually inspect
  • Inform employees about security measures, such as cameras and inventory controls. Make them part of the security team.
  • Conduct full inventories regularly and spot checks on occasion. Keep accurate records on cash and product inventory. The person conducting the inventories should be someone other than the person responsible for maintaining it.
  • Establish a key control system and appoint a key control officer to manage the system.
  • Keep keys in a locked cabinet and keep daily records of keys issued.
  • Number each key and have employees sign for keys when they are issued. 
  • Have keys stamped DO NOT DUPLICATE.
  • Change the locks if a key is lost or when an employee leaves the business.
  • Don’t issue keys to contractors and cleaners. Have them sign for keys and then return them at the end of the day.
  • If you can, replace key system with access cards. Access cards can’t be duplicated and they can be deactivated when reported missing or when the employee’s authorization ends. Access cards can also control the access of the person the card is given to.
  • Establish purchasing procedures. Require two signatures on all purchases.
  • Establish a requirement for supporting documentation for each purchase.
  • Use pre‑numbered checks in sequence.
  • Establish procedures for handling cash.
  • Provide a receipt for every transaction.  
  • A manager should sign off all voids and over‑rings.
  • Limit the amount of cash accumulated in any register. Install a drop‑safe for excess cash.

While most employees are honest, a smart business owner should recall what President Ronald Reagan called his policy towards the Soviets. “Trust, but verify.”

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